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https://docs.google.com/document/d/1g4UX8XHexmdYvBR9ijViEhiqGGEXrxIf132B22pI9Sc/editFRAUD OR MISCONDUCT BY FINANCIAL INTERMEDIARIES
(original link here
http://www.mcmillan.ca/Files/142508_Fra ... iaries.PDFA summary and report by Frank Palmay and Assunta Di Lorenzo of McMillan LLP
I hope that victims of financial abuse study this document. It should be a great help to those seeking a better understanding of what has happened to them and what they might be able to do about it. Do not accept the simple story about "markets down, you knew the risk". I suggest that the greatest risk facing investors today is that the financial intermediary (read salesperson) will defraud them using misconduct that the industry is willfully blind to.
This report as it stands it does not understand many of the "systemic" sleights of hand which make simple application of the law nearly impossible, but it is a very good (perhaps the best) starting place with which to begin revealing those sleights of hand.
(advocate comments below by no means meant to diminish a great report, but rather to broaden the perspective, and open the discussion wider)
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1. One limitation to the report seems to me to be a view that fraud is mostly done by "bad apples" in the system, and it may not recognize, or be willing to discuss that some systems are designed to be "bad" for the public, and good for those who operate the system. My experience is that "systemic" fraud and professional misconduct is thousands of times more damaging to our country and our economic well being than a few simple bad apples in the system. For examples and numbers of the damages from overlooking this view see video presentation at
http://youtu.be/aNh5laKO22o2. On page one, bottom paragraph, are some comments about the efforts of the various securities commissions. From the comments and the tone it is apparent that the writers of this report are not versed in the inner workings of the securities regulators in Canada. I cannot claim to be myself, but having come from the inner workings of the largest banks in Canada, of over two decades within, I aware that securities regulators in Canada are bought and fully paid for (100% of salaries) by the financial industry they claim to regulate. The smartest money in Canada knows well that the game is rigged, with the help of captured regulators, almost entirely for the benefit of the industry. Again, this report is of tremendous value, except for the fact that none of it applies to crimes above $100 million. The law is great and all, but at higher systemic levels it simply has found nobody in the country with the will or the courage to apply it. Canada has no Elliot Spitzer or fighting attorney general. (see video above for lack of police budgets for higher value economic crime)
3. On page three, mid page, are comments about Bill C21, (Standing up For Victims of White Collar Crime Act). It discusses the importance of the two year minimum sentence creation for fraud over $1 million. What it misses is that the base legislation appears to have been written by banks, or by lawyers working for the banks, as
the entire section 380 (2) as it covers "public markets" fraud was cleverly and craftily removed by those who drafted this legislation. Nice work if you have the ability to write your entire industry out of that aspect of the criminal code. (I was in parliamentary committee in Ottawa when this fact was brought up, and the young government lawyers who appeared to have had this act handed to them to sell already written, spoke a mile a or two without saying anything much to the question. They felt that the million dollar threshold would capture "any" public markets fraud. I personally can see a bank defrauding one million people of $1000 each, and arguing in front of a friendly judge that this act does not apply to them, as none of the frauds exceeded $1 million..............believe me, I have seen far worse. (see topic post at
viewtopic.php?f=1&t=188&p=3072&hilit=c21#p3071 for a better view of section 380 Fraud, as it applies in C21 to "the rest of us, just not bankers".
4. On page three the final line on the page speaks about those "found to have violated the standards of regulatory authorities", and missed in this scenario is the that all salaries are paid to financial regulators by those they regulate. It thus causes me to bring up another comment on the and of the third of fourth paragraph of that page, the term "willful blindness". It applies not to the fraud and misconduct of financial intermediaries, but to Canadian regulators. But don't take my word for it.......read a US newspaper, and see if regulators were willfully blind in their markets. No, Canadians are NOT morally superior to the Americans? For salaries over $700,000. We simply have less of a media to disclose misconduct.
5. Page four second paragraph speaks well to the issue of "deceit". It caused me to scribble notes about the deceit practiced against all Canadian retail investors, namely leading them to believe they are dealing with trusted, trained, professional, or licensed financial "advisors", when in fact I have not found that to be the case. see topics at this forum on "advisor fraud" or topic "Fiduciary or not" on the bait and switch involved and the widespread deceit that these same regulators act willfully blind to.
6. Page 5, first paragraph jumped out at me when discussing the "broker client relationship to be a "spectrum" - on one end it was a relationship of full trust and advice, and on the other end, the broker does not provide any advice and acts as an "order taker" for the client. This is so wrong that words almost fail. When, in the history of selling investments has a salesman ever informed the public that they were nothing more than an "order taker", owing them no duty of care, and no fiduciary duty. Answer? Never. Pick up a magazine, newspaper, or look at a financial intermediary advertisement on your local bus shelter. None are suggesting anything but the highest end of the spectrum, trust, professionalism, codes of conduct, advice tailored to the needs of the client......every time. This is example of the "bait and switch" or fraud of lending the public to believe a relationship with a trusted professional, and then delivering something entirely different. Did I mention the word fraud?
7. Page six, middle of page has some rather incorrect information saying "although the tendency of the courts has been to find that the relationship between client and financial intermediary is a fiduciary one.......". I have seen many cases of large brokerage firms being called into court by abused clients, and I have seen more arguments won by the firms pulling out "discretionary" vs "non discretionary" account definition out of the woodwork, unbeknownst to the poor customer, this little trick had never before been explained to them, or disclosed. Just held up for the judge as proof that investment firms owe no duty of care to the client. End of case most times. (see court cases section at
http://www.investorvoice.ca for some examples of trusting, vulnerable, elderly, dependent customers getting "beaten" with this bank and legal trickery)
8. Same page sic, last paragraph, "It has long been the case that when a person with special skills undertakes to give advice which he knows will be relied upon, he is under an obligation to do so with care". Ouch! That one really hurts it is so far out of touch with financial intermediaries. First, the line sounds good, but when viewed from the perspective of a financial giant, here is how we prefer to see it spun and presented......" the customer retained all decision making authority with the account and was thus the author of his own misfortune........further, investment markets inherently present a degree of risk, so we cannot be held accountable for downturns........etc". They can pull this little gem out, EVEN when they have knowingly sold a load of garbage, to the vulnerable client. Even when they have clearly taken advantage of the imbalance of knowledge, sophistication etc of the relationship and abused the client's interests.......they still can spin it in this way and usually get away with it.
People, and courts, still have not clearly differentiated between "he knew he was taking a risk......", and premeditated fraud and misconduct against the customer by the financial intermediary. The difference is huge.
Finally, for
the ultimate insult, they can point out that they have "changed" the "client interest must come first" rule, and now it simply says the investments must be "suitable". Suitability is subjective, and is usually judged by the guy selling the investment........."ya, so what,...... the client wanted transportation and I sold him a cow.........it is suitable to ride a cow". (see
http://www.examiner.com/article/broker- ... and-switch for a look at how the "customer first" oath has been sold out by financial intermediaries and regulators without informing the most important stakeholder......the public)
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This is what the rules used to say: (year 2000, source Canadian Securities Institute Conduct and Practices Handbook)
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